Do the Tories know high tax is bad for growth?

By Janet Daley

12:01AM GMT 17 Mar 2008

I used to think that the Tory leadership was like a misguided general determined to fight the last war. Now it seems that it is the war before the last one that they want to fight - from the losing side.

Their shadow Treasury spokesman Philip Hammond has neatly provided them with an almost perfect replica of John Smith's "shadow budget", which ensured a Labour defeat in 1992 - against all the odds and in the teeth of even better opinion poll figures than the Conservatives are getting now.

Mr Hammond has gone way beyond the earlier position of his boss George Osborne - which was pretty exasperating in itself but at least had a plausible political logic.

Mr Osborne had committed the party, as it were, to being uncommitted on the question of tax cuts: there would be no promises now of "upfront, unfunded" tax reductions, just a cautious wait-and-see-if-we-can-afford-it-at-the-time approach.

Reducing the tax burden was, of course, an "aspiration" but it was an open question whether the economic growth which was to be "shared" between public spending and tax reductions would be sufficient to allow for the latter (since the party had already undertaken to match the former at Labour levels).

Never mind that the economic logic of this argument was bizarre: tax cuts stimulate growth in the economy. To say that you will have to wait for the growth before you can reduce taxes is like saying that you will only be able to afford the fertiliser after you have harvested the crops.

But the whole Tory philosophy seemed to be about not frightening anybody or giving Labour any pretext for shrieking "same old Tories". Now, however, we have apparently moved on from this odd position.

Mr Hammond, a man who seems not to understand the meaning of the word hubris, has given us an insight into what appears to be a far more definitive long-term project: there is no question of any tax cuts in the party's "first term", which will be all about making the savings (while not making any cuts in public spending, remember) that would make cutting tax theoretically possible.

Only then, in the confidently predicted second term, would there be scope for reducing tax. So presumably those undertakings Mr Osborne seemed to be giving about inheritance tax at last year's spectacularly successful party conference are null and void. At least for the first four years. Which, given that a general election is unlikely before 2010, means you can forget about being allowed to keep any more of your own money until at least 2015. Think you can hang on for that long?

At a stroke, this policy disfranchises that entire tranche of the population who are looking desperately not just for some relief from the financial burden of direct and indirect taxation but also for a glimmering of sympathetic understanding from at least one political party.

In his interview with The Sunday Telegraph, Mr Hammond presented a Marie Antoinette picture of his party perhaps, at some retreating point in the future, being prepared to dispense what he seems to believe is his money to "give away", rather than to give back to its rightful owners: "When the money's piled up in the pot, then you give it away in tax cuts."

All of which may tend to confirm the suspicion that many voters might have had about David Cameron and his people: that they do not really understand or even much like the sort of people who have to worry about paying the mortgage. There is a hint of noblesse oblige about the Cameron-Osborne dispensation: a sense that, like benevolent 19th-century aristocrats, they feel more comfortable reaching out to the poor and the deprived than they do commiserating with the striving, struggling petite bourgeoisie.

Strangely, William Hague, when being interviewed by the BBC's Andrew Marr yesterday - presumably fully aware by that time of the impact of Mr Hammond's portentous words - simply reiterated the original Osborne doctrine: no promises of upfront cuts, have to wait and see what state the economy is in, stability must come first, blah-blah.

So which is it? There is a huge difference between refusing to promise something and positively ruling it out. The former can suggest caution and sagacity, the latter implies inflexibility and political obtuseness.

Either it is impossible to predict what the state of the economy will be in two (or however many) years' time, or it isn't. If it isn't, then you can no more arbitrarily rule things out than you can rule them in.

But of course, the Conservatives have already ruled something in quite definitively: they have pledged to match Labour's spending totals. They might distribute the largesse a bit differently - a bit less to welfare, a bit more to defence - but they would not reduce the overall share of the nation's wealth that the State dispenses.

I assume that they see this commitment as the precise analogue of New Labour's promise - thought to have been essential to its original electoral breakthrough in 1997 - to keep to Conservative spending limits. So if the formula worked for them, the simple-minded equation assumes, it will work for us. Sorry, no.

The Blair-Brown pact on holding to Tory spending levels for their first two years in office was a promise to maintain a policy that worked. When the two years were up, they had the long-awaited party and flooded the country with spending so profligate that they ended up mired in debt.

Promising to match the Government's current spending levels is to underwrite a policy that manifestly does not work. It is also effectively to dismantle any meaningful critique of ministers. A Tory spokesman who attempts to criticise the Brown spending spree can be flattened with the perfectly sound observation that his party is proposing to do exactly the same.

Mr Cameron, in a speech which has now been almost completely overshadowed by Mr Hammond's rewrite of tax policy, spoke last weekend of his party's support for young families.

Well, I know something about struggling young families. At the moment they believe that the Government is milking them dry and persecuting them for every effort that they make to do the best for their children.

What they want to hear is not a load of supercilious condescension about how much (or how little) of their own money politicians might allow them to keep, but that somebody who might someday be in power understands their problems and is on their side.